easyJet Airline Company Limited

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easyJet Airline Company Limited

easyLand
London Luton Airport
Bedfordshire LU2 9LS
United Kingdom
Telephone: +44 8706 000 000
Fax: +44 1582 44 33 55
Web site: http://www.easyjet.com

Public Company
Incorporated: March 1995
Employees: 1,400
Sales: £263.69 million ($385.8 million) (2000)
Stock Exchanges: London
Ticker Symbol: EZJ
NAIC: 481111 Scheduled Passenger Air Transportation

EasyJet Airline Company Limited is a no-frills airline based in London. The carrier apes the Texas-based low-cost pioneer Southwest Airlines to the extent of placing that company’s mission statements on its boardroom wall. Its fares are often one-third of those of state-sponsored airlines like British Airways. Direct selling is a key part of controlling costs; the corporate URL is painted on the sides of its jets in its unmistakable trademark orange.

Orange Origins

Stelios Haji-Ioannou, the son of a Greek Cypriot shipping tycoon, came to England in 1984. After studying at the London School of Economics, he earned a masters degree in business at City University. Stelios then went to work for his father, who, in 1992, loaned him $50 million to set up his own company to transport refined petroleum products. He was 25 years old at the time.

Stelios (who enjoined people to use his easier first name instead of his confusing last name) began thinking about aviation when Virgin Atlantic’s Greek franchisee approached him to invest in a London-Athens route. Instead, Stelios decided to start his own airline. His father loaned him £5 million ($7.7 million) to fund the venture.

The search for successful business models led Stelios to the United States and Southwest Airlines and its principle of price elasticity. Southwest lowered fares to the extent that it attracted people who would not have otherwise traveled by air. It competed as much with buses as it did with other airlines.

At first, easyJet operated a paper airline. It contracted British World Airlines to fly and maintain its two leased Boeing 737s (the model of choice of Southwest Airlines), which it packed with 148 seats a plane. Other early providers of planes and pilots included Monarch Airlines and Air Foyle.

EasyJet’s base in London was low-rent Luton Airport, formerly used only by charter operations. (A large part of easyJet’s strategy was the use of secondary airports, but not as out-of-the-way as those served by the Irish discount carrier Ryanair.) EasyJet first linked London with Glasgow (beginning November 10, 1995) and Edinburgh (two weeks later) via two leased planes. Aberdeen was added in January 1996.

Soon after, easyJet ventured into Europe, competing against British Airways (BA) and KLM in Amsterdam. EasyJet focused on short-haul routes, where European fares, mile per mile, were often twice those of their American counterparts, with the aim of halving its competitors’ fares. The ideal market for easyJet was one that could support eight to ten flights a day and was operated by two state-owned carriers.

Among easyJet’s earliest routes were ones to Geneva and Zürich. Stelio capitalized on the Swiss connection by buying a 40 percent stake in TEA Switzerland, a failing charter airline that was renamed easyJet Switzerland.

Some have suggested the company spent all its revenues on advertising in the beginning. Billboards proclaimed the £29 ($43) London-Scotland fare “as cheap as a pair of jeans.” It was one-tenth the price charged by British Airways. Television ads directed customers to call the company’s reservations number (0990 29 29 29; it was also painted on all their planes) and book flights with their credit cards, bypassing travel agents. In fact, easyJet’s own reservationists were paid by commission only (80p per seat). Direct selling was an important part of the equation; the Internet quickly became the company’s preferred booking medium.

EasyJet was notoriously lean on service. There was no catering; the company even charged passengers for soft drinks and snacks. There were no cancellations or refunds; EasyJet sold only the number of seats on the plane.

Simplification, frugality, and friendliness were three keys to easyJet’s strategy. “Easy come, easy go” was its motto. The dress code reflected this casual (yet fast-paced) attitude. Cabin crews wore jeans and orange sweatshirts. Neckties were banned for all personnel except pilots, although the company did eventually upgrade its employee uniform somewhat.

Orange, easyJet’s distinctive corporate color, covered everything, including the mass of hangar-like buildings (a gift from Luton Airport) known as “easyLand” that served as easyJet’s headquarters.

Marketing described the corporate culture as “brutally transparent”; employees in all areas of the paperless offices shared all types of information (apart from payroll). The company scanned all its documents into a computer system accessible to all employees.

By introducing price competition to a market driven by freebies (such as frequent flier miles) and previously oriented towards business travelers, easyJet stimulated traffic in the markets it entered, much as Southwest Airlines had done in the United States. However, The Economist observed, EasyJets carried their share of proverbially thrifty Scottish businessmen.

A More Mature Image in 1996

EasyJet grew up quickly. In March 1996, Stelios hired New Zealander Ray Webster as easyJet’s new managing director. By this time, he told Air Transport World, the founder had determined that the market was responding and was committed to buying new aircraft and expanding the business.

Stelios had visited ValuJet (later known as AirTran) in Atlanta before setting up his own airline (note the similarity in company names); its example had prompted him to outsource most operational functions in the beginning. However easyJet did not use as many different vendors as the ill-fated American airline, which suffered a devastating crash in May 1996. EasyJet also was not growing at the same explosive rate.

To promote confidence in the passengers leery of cut-rate airlines, easyJet’s advertising began featuring a more mature image in mid-1996. The ads explained why it was possible to reduce fares without compromising safety. Gone was the cartoon airplane, replaced by a butcher trimming fat, an analogy for “the virtually fat-free airline.”

Within its first year, easyJet had added service to Barcelona, Nice, and Amsterdam. The expansion, however, was not completely smooth for the orange upstart. Stelios complained in the courts and in the media of a number of obstructions, beginning with KLM Royal Dutch Airlines trying to keep it out of Amsterdam’s Schiphol Airport via alleged predatory pricing. An easyJet in-flight magazine (quoted in Air Transport World) reported the following line from an internal KLM memo: “We have to stop the development and growth of easyJet.”

At the end of 1996, easyJet was operating four jets. By this time, British Airways (BA) CEO Bob Ayling was offering to buy the company. When that failed, BA began setting up its low-cost subsidiary that would be known as Go Fly Limited (Go).

With the liberalization of the European air transport market, several other new airlines had joined the fray, including Ryanair of Ireland and Britain’s Debonair. EasyJet had been rumored to be discussing a merger with Brussels-based Virgin Express as BA, through Operation Blue Sky, was preparing to launch Go.

In 1997, easyJet turned a profit of £2 million on a turnover of £50 million. By the next year, the Haji-Ioannou family had invested a total of $90 million in the company, which had ordered a dozen new Boeing 737s worth £500 million.

Stelios and a few of his staff booked seats on the first Go flight. Although Go CEO Barbara Cassani sent Stelios a personal note welcoming him aboard, her gesture was overpowered by easyJet’s ensuing publicity coup. Stelios and a few colleagues boarded the plane wearing orange boiler suits and completely hijacked the media attention. During the flight, they handed out 148 vouchers for free flights on easyJet to their fellow passengers. The easyJet web site later invited visitors to predict Go’s annual losses (which amounted to £22 million in its first full year). Theatrics also turned up aboard easyJet planes, recorded by the British reality-based television program, Airline.

In the next couple of years, Stelios extended the easy brand into other family-owned companies separate from easyJet’s corporate structure, including easyRentacar and easyEverything Internet cafés, which were popular in Britain due to the relative dearth of personal computers. Stelios had global aspirations for the cybercafés—one opened in New York City in November 2000.

Company Perspectives:

The company’s mission is to provide our customers with safe, good value, point to point air services. To effect and to offer a consistent and reliable product and fares appealing to leisure and business markets on a range of European routes. To achieve this we will develop our people and establish lasting relationships with our suppliers.

A Public Offering in 2000

EasyJet posted a profit of $33 million for the 2000 fiscal year, ended in September. A quarter of company’s stock was floated on the London Stock Exchange on November 15, 2000. Shares were offered exclusively to institutional investors in an offering that raised £190 million ($275 million); most of this was earmarked for 32 new Boeing 737s. In the first day of trading, the share price rose impressively.

BA began offering Go for sale in November 2000, which may have seemed an attractive investment for Stelios if only for its base at Stansted Airport. Luton, then in the hands of Barclays Bank, was at the time trying to triple its landing fees. After donning his infamous orange boiler suit and publicly cutting up his Barclays card, Stelios challenged the rate hike in court. (He had attempted to buy Luton himself in 1997, but the local council declared a conflict of interest.)

EasyJet began services to several destinations from a new Amsterdam hub in January 2001, creating its fourth hub after Luton, Liverpool, and Geneva. The company, which then operated a fleet of 19, had more than 30 brand new Boeing 737s scheduled for delivery through 2003.

Often compared to Richard Branson in his struggle with British Airways, Stelios fashioned himself a champion of the common man à la Sir Freddie Laker. “You must never underestimate the importance of being seen as the little guy against the big guy,” he told Airways magazine, which noted the easyJet catchphrase, “the web’s favorite airline,” a play on BA’s motto.

Principal Subsidiaries

easyJet Switzerland (40%).

Principal Competitors

Go Fly Ltd.; Ryanair Holdings plc; Virgin Express.

Key Dates:

1995:: easyJet is founded by Stelios Haji-Ioannou.
1996:: The company starts its first service to the Continent (London-Amsterdam).
1997:: British Airways launches its low-cost competitor, Go.
2000:: A quarter of EasyJet’s shares are floated on the London Stock Exchange.